Friday, February 2, 2018

STI Analysis -- the next peak and trough ? (III)

The previous 2 analysis (refer here and here) were research on when the current Elliott Wave cycle which started in 2009 will hit its peak and when will be the next trough -- the start of another Elliott Wave cycle of Primary degree.  Having that timeframe being worked out -- potentially peak at 2018 or 2019, another financial crisis and recession in 2019 or 2020 and finally the trough at 2020 or 2021, this framework shall be used to analysis for potential peak value for this Elliott Wave cycle.

Have mentioned before STI is now in the wave 3 of the Elliott Wave cycle of Primary degree, knowing the various checkpoints of wave 1 and wave 2 will be able to predict the outcome of wave 3, wave 4 and wave 5.  This is so as in Elliott Wave, the 5 waves are well defined by Elliott Wave rules and related to by Fibonacci ratio (in most case).

From March 2009 STI low of 1513.12 till February 2016 low of 2539.95 STI has completed both wave 1 and wave 2 but there are 2 scenarios in which how they are being formed.

The above chart showed the first scenario in which wave 1 did a leading diagonal with its peak of 3525.18 on April 2015 followed by the usual zigzag wave 2 ending at 2539.95 on February 2016.  As such the length of wave 1 is 2012.06 making STI enjoyed a gain of 132.97% and wave 2 retreated about 50% of wave 1.

The above chart showed the second scenario in which wave 1 did a normal impulse ending at 3261.35 on January 2011.  Wave 2 instead of the usual zigzag did a double three combination comprising of a zigzag (W), a second zigzag (X) in the oppose direction and a flat (Y).  As such, the length of wave 1 is 1748.23 making STI enjoyed a gain of 115.54% and wave 2 retreated slightly more than 38.2% of wave 1.

While both scenarios appeared to be valid but scenario 2 seemed more fitting to the fundamental of the economy.  Key personality of Elliott Wave 1 is "the fundamental news is almost universally negative and the previous trend is considered still strongly in force".  Key personality of Elliott Wave 2 is "news is still bad, bearish sentiment quickly builds and volume should be lower than wave 1".  From 2011, STI (and global markets) encountered several bad news in the Japanese tsunami in 2011, Europe debt crisis in 2012, US Fed indicating QE tapering in 2013, the oil supply glut leading to oil crisis in 2014 and the fear of China economy in 2015.  Though we have several bad news but the overall fundamental was not as bad as in 2008 as global interest rate was at very low level with US, EU and Japan all launching the QE to support the economy.  It was also observed that the average volume from 2011 to 2015 was lower than the period from 2009 to 2011.  All these pointing to a wave 2 scenario more than a wave 1 scenario.

Now since start of wave 1 is at 2009 and end of wave 2 (start of wave 3) is at 2016 for both scenario, why it is important to correctly identify which is which ?  In Elliott Wave, each of the wave is related in its length and pattern.  In scenario 1 the length of wave 1 is 2012.06 while that of scenario 2 is 1748.23.  Typically, if wave 1 is not extended (in both cases, no indication that wave 1 is extended), then wave 3 shall be 1.618x of wave 1 if it is extended.  As such, scenario 1 wave 3 will end at 5796.34 while scenario 2 wave 3 will end at 5368.59.  Should wave 3 is not extended but instead of wave 5 and since wave 3 cannot be the shortest wave, hence wave 3 should be of equal length to wave 1.  That will bring scenario 1 wave 3 to 4552.01 and scenario 2 wave 3 to 4288.18.  In additional, the wave 2 of scenario 1 is a zigzag and that will lead us to a wave 4 having a flat or combination pattern.  On the other hand, scenario 2 wave 2 is a double three combination and this will lead us to a wave 4 having zigzag.

Focusing on scenario 2 since it fits in more accurately to the overall fundamental, the possible ending point of wave 3 at 5368.59 (if it is extended) or 4288.18 (if wave 5 is extended).  This figure probably looks "scary" to many as STI is only at 3529.82 (as of 2nd February 2018) and that will take another 758.36 points to reach 4288.18 or another 1838.77 points to reach 5368.59.

Look at the previous Elliott Wave starting from 1998 (STI 805.04) to 2007 (STI 3857.25) in the below chart.

The length of wave 1 and wave 3 were 1674.54 and 2372.10 respectively, very similar to what we are observing now in the scenario 2 in which length of wave 1 is 1748.23 and the calculated wave 3 length is between 1748.23 to 2828.64.  For the 1998 to 2007 cycle, the length of wave 3 is 1.417x length of wave 1.  If we apply the same ratio for present case, length of wave 3 will be 2477.24 and that will bring wave 3 to end at 5017.19.

In term of percentage, 1998 to 2007 wave 1 and wave 3 percentage gain were 208.01% and 184.96% respectively.  In present case, wave 1 percentage gain is only 115.54%.  Should wave 3 ends at 4288.18, 5017.19 or 5368.59, the percentage gain of wave 3 is 68.83%, 97.53% or 111.37% respectively.  All those figures are in general lower than what STI has achieved in the 1998 to 2007 cycle.  Therefore, it is not impossible to hit those "scary" figures in this Elliott Wave cycle.

It could be too early now to start using Elliott Wave to count the present wave 3 as what we might be counting could be the sub sub-wave (Minor degree).  However, if we look at the Intermediate degree, the sub-wave of Primary degree, we might be able to fit into the possible wave 3 value as mentioned above.

What we are looking is taking the peak happened last month at 3609.24 to be the peak of Intermediate wave 1 after the Minor degree completed wave 1 to wave 5.  That would give us the length of Intermediate wave 1 to be 1069.29.  Should we follow the typical case of Intermediate wave 3 is 1.618x of wave 1 and wave 5 is the same as wave 1 with wave 2 retreats 61.8% of wave 1 and wave 4 retreats 38.2% of wave 3, that will give us a total length of 2.618x of wave 1 to reach Intermediate wave 5 (the peak of Primary wave 3).  This value calculates to be 5339.35, pretty much falls into the range that is mentioned above.

Though mentioned it could be too early to start counting Primary wave 3 BUT one thing for sure is present Elliott Wave cycle must move higher than the 2007 peak of 3857.25 in which STI has yet to achieve that.  Another aspect is any correction of Primary wave 3, that is Primary wave 4 cannot end lower than Primary wave 1 peak (3525.18).  As such, STI still have lot of room to move up before this Elliott Wave cycle comes to an end.  Given the nature that wave 3 having a steep gradient and to conform with the previous analysis that 2018 or 2019 (more likely 2019 now) to be the peak of this Elliott Wave cycle just fit in nicely.

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